Power Sheet – April 8, 2016

-One of the sturdiest rules for CEOs has long been to stay out of highly charged political issues, especially in election years. A few CEOs have begun to break that rule, though most have not; Apple’s Tim Cook, Salesforce’s Marc Benioff, Walmart’s Doug McMillon, Starbucks’s Howard Schultz, and others have spoken out on same-sex marriage, LGBT rights, and other social issues. Another matter on which you can rile the masses with just a few words is “big banks,” or better yet, “big Wall Street banks.” Bernie Sanders came out strongly for breaking up big banks just a few days before Dimon’s letter – which makes an extended, unapologetic case in favor of big banks. They’re necessary, he says – “Only large banks can bank large institutions” – and more than that, they are good. Big banks are actually stronger and safer than small ones, he argues, and they’re a crucial part of America’s leadership in the world. If you disagree, you’ll have to refute several pages of cogent advocacy.

-Another near-universal rule among CEOs is don’t talk about what could go wrong unless forced to. Yes, you have to list a zillion risk factors in the 10-K, but you certainly don’t have to do it in your letter to the shareholders. Yet Dimon dwells on several possible disasters in detail. One of them made headlines yesterday – “Jamie Dimon Says His Banks Could Lose $4 Billion in China.” He did indeed say Chase could lose that much under the assumptions of “a severe stress test.” His point was that even in such an unlikely scenario, “we could easily handle it.” He also describes at length the Fed’s latest mandatory stress test on Chase and all major banks, noting that the Fed estimates Chase would lose $55 billion pre-tax over nine quarters in those unlikely circumstances – “an amount that we would easily manage because of the strength of our capital base.” He claims the bank has made “extraordinary progress toward reducing and ultimately eliminating the risk of JP Morgan Chase failing.” In case you wondered, bank CEOs generally try to avoid the word “failing.” But Dimon’s head-on confrontation of the topic likely increases confidence among most readers.

-A rule many CEOs feel they’ve learned the hard way is never admit failures or mistakes unless absolutely necessary. Yet Dimon uses the words “mistake” or “mistakes” 17 times in this letter. Sometimes he’s discussing what happens “if and when” the company makes mistakes; sometimes he’s admitting that the company will make more, because they’re inevitable. He says talking about past mistakes is an important part of the bank’s new-leader development program and admits that not having such a program until last year was a mistake. He notes that the company pleaded guilty to an antitrust violation last year in a settlement with the Justice Department, a fact he was certainly not obliged to mention. He even says, “Admitting mistakes is good, fixing them is better, and learning from them is essential.” Warren Buffett likewise confesses sins in his famous annual letter. Again, the effect is to increase confidence, not reduce it.

Dimon is no neutral observer, obviously. He’s selling. His letter also contains its share of platitudes. If you think Wall Street banks are the essence of evil, reading his letter probably won’t change your mind. But you won’t harbor doubts about where he stands or why, even on sensitive issues, and that’s one mark of a good leader.

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